Shamed and able

Aaron K. Chatterji

We apply institutional theory to explain how firms respond to information disclosure. Considering the impact of institutional and technical forces, we hypothesize that information disclosure is particularly likely to spur responses from firms whose legitimacy is threatened (and thus are shamed) and face lowercost opportunities to respond (and thus are particularly able). Testing this by examining how firms respond when their environmental performance is disclosed by a social rating agency, we find empirical evidence that supports our hypotheses. We present implications for theory and public policy.